1) Presented below is a partially completed income statement of Deep Sea, Inc. for
2014.
Using the partially completed income statement for Deep Sea, Inc., determine each of
the following for 2014.
A) Net Sales
B) Beginning Inventory
C) Ending Inventory
D) Selling, General and Administrative Expenses
2) The following information comes from the records of Morton Corporation. Assume
no additional investment by owners when answering the following questions:
A) What is the amount of owners equity at January 1, 2014? __________________
B) What is the amount of liabilities at December 31, 2014? __________________
C) Assume that the company declared and paid dividends of $22,000 during the year.
How much net income did it earn during the year?
D) Assume that the company paid no dividends during the year. Without looking at the
income statement, how can you tell if the company is profitable or not?
3) The following information was obtained from the 2012 and 2011 financial statements
Better Books and Tenacious Texts. Assume all sales are on credit for both companies.
(in millions) Better Books Tenacious Texts
Accounts and notes
receivable, net 12/31/12 $ 3,100 $ 4,800
12/31/11 3,320 4,500
Inventories 12/31/12 2,080 2,530
12/31/11 2,250 2,320
Net revenue 2012 32,010 44,050
2011 28,900 39,500
Cost of goods sold 2012 11,370 20,350
2011 10,400 18,000
REQUIRED:
1> Using the information provided, compute the following for each company for
2012(rounded to two decimals):
a. Accounts receivable turnover ratio
b. Number of days sales in receivables
c. Inventory turnover ratio
d. Number of days sales in inventory
e. Cash-to-cash operating cycle
2> Comment briefly on the liquidity of each of these two companies.
4) The solution to this problem requires time value of money calculations. Reference to
Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
To calculate the future value of an amount that is invested at 12%, compounded
quarterly, at the end of three years, the interest factor used would be
A.1% for 12 periods
B.3% for four periods
C.3% for 12 periods
D.12% for three periods
5) Services are provided for customers who pay for the services immediately. For this
transaction, identify the effect on the accounting equation
A.Assets increase and liabilities increase
B.Assets increase and stockholders equity increases
C.Liabilities increase and stockholders equity decreases
D.Liabilities decrease and assets decrease
6) Read the information about Webb Company. By what amount will net income on a
single-step income statement differ from net income on a multi-step income statement if
Webb Company prepares both formats?
A.$ 800
B.$ 600
C.$ 200
D.$ -0-
7) If Cable Inc. receives $23,825 from credit card collections and has an average rate of
4.7% charged by the credit card company, its credit card sales during the period were:
A.$111,978
B.$50,691
C.$25,000
D.$22,705
8) Grover, Inc.
Grover, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual
value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation. The
crane was purchased on January 1, 2013 and was used 2,700 hours in 2013 and 2,600
hours in 2014.
Refer to the information about Grover, Inc.
What amount will Grover, Inc. report as depreciation expense over the 8-year life of the
equipment?
A.$60,000
B.$72,000
C.$75,000
D.$80,000
9) The group with primary responsibility for development of a single set of accounting
standards around the world is the
A.FASB
B.SEC
C.IFRS
D.IASB
10) Which method of preparing the operating activities section of a statement of cash
flows adjusts net income to remove the effects of deferrals and accruals for revenues
and expenses?
A.The direct method
B.The indirect method
C.Both the direct and indirect methods
D.Neither the direct method nor the indirect method
11) Paint Company
Following are selected data from Paint Companys financial statements.
Refer to the Paint Company data.
The companys times interest earned ratio for 2012
A.shows an increase in the company’s ability to pay its current debt when it comes due.
B.indicates the company cannot meet its current year interest payments out of current
year earnings.
C.increased, which indicates the company’s lenders will be pleased.
D.decreased, which indicates the company has more cash to pay interest on its debt.
12) Readers of the financial pages of the daily newspaper noticed the following
information with regard to the Connor Company stock: Daily high, 45.50; Daily low,
42.25; Last, 43.50; Change, +0.75. This tells readers that the
A.stock was selling at 43.50% of par at the close of the day
B.stock gained $3.00 in value over the previous day
C.stock gained $.75 in value over the previous day
D.company’s stock is a popular investment
13) Cyprus Corp. received a 7%, 6-month promissory note with a face amount of
$8,000 from the Mustafa Company for the sale of merchandise on May 1, 2014. Cyprus
accounting year-end is December 31.
REQUIRED: How much interest income will Cyprus Corp. recognize over the term of
the note?
14) Tentco reported the following amounts in various statements included in its 2014
annual report. (All amounts are stated in millions of dollars.)
REQUIRED:
(1) Prepare a Statement of retained earnings for the year ended December 31, 2014.
(2) Assume that Tentco presents a statement of stockholders equity rather than a
statement of retained earnings in its annual report. Explain how the information differs
between the two statements.
15) ____________________ is the magnitude of an omission or misstatement in
accounting information that will affect the judgment of someone relying on the
information
16) [APPENDIX] Explain the differences between a partnership and sole
proprietorship. Include in your discussion whether either is considered a separate legal
entity.
17) Below are three notes payable:
Note Face Value (Principal) Rate Term
1 $30,000 4% 6 years
2 30,000 6% 4 years
3 30,000 8% 3 years
REQUIRED:
Part 1 For each of the notes, calculate the simple interest due at the end of the term.
Part 2 Now assume that the interest on the notes is compounded annually. Calculate the
amount of interest due at the end of the term for each note.
Part 3 Finally, assume that the interest on the notes is compounded semiannually.
Calculate the amount of interest due at the end of the term for each note.
Part 4 What conclusion can you draw from a comparison of your results of each of the
three scenarios?
18) Corrigan Corp. purchased 1,000 shares of Microsoft common stock. What will
determine whether the shares are classified as current assets or noncurrent assets?
19) Learning Tree, Inc.
The following data is available for one of the products sold by Learning Tree, Inc.,
which uses the perpetual inventory system:
Refer to the data for Learning Tree, Inc.
If the LIFO method is used, what is the amount assigned to cost of goods sold for the
2,500 units sold on May 10?
20) Service-oriented companies have different needs than product-oriented companies
when analyzing financial statements.
REQUIRED: Why is this true? Give an example of a financial ratio that is meaningless
to a service business.
21) The cost of Garmin Corp.s inventory at the end of the year was $85,000; however,
due
to obsolescence, the cost to replace the inventory was only $65,000. Identify and
analyze the effect of the transaction needed at the end of the year.
Dec. 31 To record decline in value of inventory.
22) Cooking Corner
Cooking Corner reported inventory on its balance sheet at December 31, 2013 at
$32,000. During 2014, Cooking Corner purchased goods totaling $634,000 on account
with terms of 2/10, n/30, FOB shipping point. Total charges paid by Cooking Corner
directly to the freight company were $1,000. At the end of 2014, inventory on hand
totaled to $45,000. Net sales for 2014 totaled $1,300,000. Cooking Corner employs a
periodic inventory system.
Refer to the information about Cooking Corner.
How much would Cooking Corner pay its supplier if Cooking Corner paid for one-half
of the goods acquired within the discount period, and the other half after the expiration
of the discount period?